EPRG 0708

John Kwoka, Michael Pollitt

Industry Restructuring, Mergers and Efficiency: Evidence from Electric Power

EPRG 0708 Non-Technical Summary | PDF

Also published in:

  • Kwoka, J. and Pollitt, M. (2010) “Do mergers improve efficiency? Evidence from restructuring the US electric power sector”, International Journal of Industrial Organisation, Vol.28 (6): pp.645-656

Abstract: This paper analyses the performance impact of the merger wave which took place in the US electricity industry during the period 1994-2003. It does so by analyzing the impact on operating and total cost in electricity distribution. While there are past studies of efficiency and productivity effects, as well as of prices, profits, and other outcomes, this study differs in several ways. First, the database consists of many merging and non-merging firms, rather than only a few on which to base inferences. Second, all of these mergers arise in a single industry, greatly facilitating controlled comparison. Third, we have data on the several years of pre-merger and post-merger efficiency of the specific merging units, unlike virtually all past studies. And finally, we employ a powerful nonparametric technique – data envelopment analysis – to measure the efficiency of each operating unit. The results indicate that electricity mergers are not consistent with improved cost performance.

Keywords: mergers, efficiency analysis, electricity distribution, data envelopment analysis

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